The Blubber

The United States is importing record amounts of beef this year and exporting less after ranchers slashed the nation's cattle herd to its lowest level in decades, per Reuters.

The United States is witnessing record beef imports and reduced exports this year, a consequence of ranchers cutting the national cattle herd to its lowest level in decades. This herd reduction, prompted by years of drought impacting pasture lands, has led to a surge in U.S. beef prices. Higher prices incentivize companies to import more affordable beef and discourage purchases of U.S. beef by countries like China, Japan, and Egypt.

The decline in cattle numbers and the resulting impact on beef prices are expected to translate into negative quarterly margins for Tyson Foods' beef business, its largest unit. Analysts anticipate this negative trend for Tyson, one of the four processors handling the majority of U.S. grain-fattened cattle, to occur for the first time this year. The U.S. Department of Agriculture (USDA) predicts a drop in the country's ranking from the second-largest beef exporter in 2022 to the fourth-largest in 2023.

U.S. beef exports are projected to decrease by 14% in 2023 compared to the previous year, reaching the lowest level since the disruptions caused by COVID-19 in 2020. Government data indicate a further decline to an eight-year low of 2.8 billion pounds in 2024, as U.S. production is expected to decrease due to tight cattle supplies.

Tyson, along with other U.S. beef exporters like Cargill and JBS, is facing challenges from both higher prices and the strength of the U.S. dollar, making American products less appealing to other countries. For Tyson, the loss of U.S. export business adds pressure on margins already strained by elevated cattle prices. Typically, U.S. beef exports yield higher margins than domestic shipments.

Analysts, including those from Goldman Sachs, project a swing to negative margins for Tyson's beef business, dropping from a positive 8% a year ago to an anticipated negative 1.1%. Tyson CEO Donnie King had previously warned of challenging export market conditions due to low cattle inventories. Tyson has been reducing staff and recently announced the closure of two plants in Florida and South Carolina.

To navigate low margins and expensive U.S. cattle, meatpackers are turning to imports, blending lean beef from countries like Australia and New Zealand with fattier U.S. supplies, particularly for hamburger production. The USDA has raised its forecasts for beef imports in 2023 and 2024, and the U.S. is set to reopen its doors to Paraguayan beef after 25 years, according to the U.S. embassy in Paraguay. Total U.S. imports have seen a 6% increase from January through September, with a significant rise in Australian shipments.